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Sugar Marketing Inquiry

Sugar Marketing Inquiry

Chain of Events

3 April 2014

Wilmar Sugar Australia (WST) notifies QSL of its intent to resign from the RSSA.

21 May 2014

WST issued QSL with a notice of termination of their RSSA with QSL.

24 June 2014

Qld Minister for Agriculture, Fisheries and Forestry, Hon Dr John McVeigh convened a meeting of stakeholders to “discuss more broadly the future of sugar marketing arrangements in Queensland and to explore what options are available to the industry which will deliver long-term favourable outcomes for all parties.”

26 June 2014

Minister McVeigh wrote to participants seeking expressions of interest to participate in “further discussions and investigate options for a marketing model that could be supported by the whole industry.”

27 June 2014

MSF limited issued QSL with a notice of termination of their RSSA with QSL.

30 June 2014

Tully Sugar Limited issued QSL with a notice of termination of their RSSA with QSL.

15 July 2014

Agriculture Minister John McVeigh announced immediate plans for the State Government to investigate competition concerns in the industry, in order to ensure that “Queensland sugar cane farmers continue to have confidence in the marketing of the state’s sugar.”

Regarding Willmar, MSF and Tully Mills, the Minister said that, ‘to ignore long held canegrower preferences for the industry owned and not-for-profit traditional marketer Queensland Sugar Limited to continue to market Queensland’s sugar has created unprecedented angst in the industry.’

He also said that, “The State Government is disappointed by the decision of three, major internationally-owned millers to withdraw from QSL which threatens to erode the long-standing marketing arrangements and place cane farmers in a weakened negotiating position in the future.”

Of the three millers, the Minister commented; “Their presence and investment in the industry is welcome, but their apparent disregard for long held industry practices and understandings is of great concern.”

The State Government is formally requesting action by the Federal Government, at the same time as investigating potential solutions in State legislation, and calling on all sectors of the industry to step up their own efforts to reach resolution.

Minster McVeigh has written to Federal Treasurer Hockey calling on him to formally consider powers under the Federal Competition and Consumer Act in relation to the millers’ decision to ditch long-standing marketing arrangements within the industry.

“Any consideration under the Federal Act may require a major assessment of the economic impact of the millers’ decision to withdraw from QSL. The LNP Government stands ready to provide the Federal Government with any assistance required to complete this assessment.”

Mr McVeigh said the Queensland Government has also referred the issue to the Agricultural Cabinet Committee to investigate if the traditional practice of growers choosing where their economic interest in the sugar is marketed could be preserved in the current Sugar Industry Act 1999.

“This is about the possibility of ensuring growers a choice in marketing. It’s not about re-regulating the sugar industry, it’s simply preserving a right that gives cane farmers a choice in who markets their sugar,” he said.

“The Australian Sugar Milling Council and its members, Canegrowers and ACFA, will be called to make submissions and present to the Ag Cabinet Committee on this key issue.

“The LNP Government’s preferred position, as previously stated, is for growers to be offered a real choice in marketing arrangements.

The Minister noted that, “At the industry meeting I recently convened in Brisbane, I made a genuine offer to chair further meetings to re-examine ‘Grower’ Choice’ model proposals, but Wilmar indicated no interest.

“It’s my job to work with industry to find the best path forward for all sectors, but Government can’t do that on its own.”

12 August 2014

Minister McVeigh confirms: “I have written to Treasurer Joe Hockey calling on him to formally consider powers under the Federal Competition and Consumer Act in relation to the millers’ decision to ditch long-standing marketing arrangements within the industry.

“Canberra may be able to help in ensuring that growers can retain choice when it comes to the marketing of sugar,” he said.

“Whilst we are conducting our own investigations and calling upon the Federal Government to do the same, I am continuing to call on all sectors of the industry to show stronger leadership and pursue commercial solutions to the impasse.”

4 September 2014

The Senate moved that the following matters be referred to the Rural and Regional Affairs and Transport References Committee for inquiry and report by 27 November 2014.

‘Current and future arrangements for the marketing of Australian sugar’

Submissions should be received by 13 October 2014. The reporting date is 27 November 2014.

The Qld Government’s Agricultural Cabinet Committee begins several rounds of consultation with stakeholders, over the next few months. It is expected that a recommendation will be presented to Cabinet, early 2015. It is worth noting that the last possible date for the next Qld election is Saturday 20 June 2015 (2015 – Last possible date for the next election).

With the Senate report due on 27 November 2014, the ACC should have ample time to make a recommendation to Cabinet before the election is due. The difficulty might be with passing the necessary legislation before the election due to the Government being in caretaker mode.

ACFA comment on the appropriate role for Government to ensure competitive and fair markets

The first major review of the Australian sugar industry by the Commonwealth government was undertaken by a Royal Commission in 1912.

The Royal Commission observed:

But the growers as a class do not, in our opinion, receive their fair share of the profits of the industry as a whole (Brown et all 1912).

The Royal Commission conceded that ‘squeezing of the primary producer’ has not reached the magnitude in the Australian sugar industry it has attained in some other countries.

But we take it that Australian statesmanship should seek to prevent as well as to ameliorate – to deal with evils as they arise without waiting for them to reach a stage when any remedy must involve far-reaching social and industrial dislocation (Brown et al 1912).

Clearly then, the action of the Minister agrees with the Royal Commission of long ago, in that it is more appropriate for Government to seeking to prevent a disaster, rather that deal with the aftermath, especially when the problem may no longer be remediable.

It is clear that at present there is a risk of market power turning the clock back more than 100 years, in the favour of milling companies, where farmers have little practical ability to negotiate fair terms for their cane, which includes the right to price the portion of sugar in their cane which translates to their cane price, in the manner of their choosing.

It is appropriate for Government to intervene in markets where there are natural monopolies. Government can restore commercial balance to enable markets to operate free from abuses of market power.

“At the heart of this issue are the principles of value, risk, trust and transparency. Price is one aspect of the value proposition and should not be considered in isolation. Pricing is one of the four pillars of our industry system, along with financing, marketing (selling) and bulk storage, handling and shipping.”

This is what ACFA has been arguing – the need for choice and a formal right to it! In order to achieve this, cane farmers must support and improve QSL, the company they already own and which has served them well.

As for any incentives to leave QSL for a rival, farmers need to be sure that the ‘carrots’ offered don’t turn into ‘sticks’ in the longer-term.

The deregulation of the Australian sugar industry has, as predicted, lead to market forces taking control. Despite claims made, the proprietary miller models are not choice models. These exclusively package-up growers into the supply chain of their miller as captive suppliers.

There are many issues facing the viability of cane farmers at present and farmers need a transparent price delivery system that consistently serves their best interest for the long-term.

The ACFA is committed to work with Government and stakeholders in order to find a way forward for farmers to hold a real and competitive choice for the marketing of their economic interest.

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